Question

Which of the following statements is FALSE regarding the tests for material participation in a trade or business activity?

a) A taxpayer can be deemed to be materially participating due to prior years of service.
b) A taxpayer must be involved in the business on a full-time basis throughout the year to be considered materially participating.
c) A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.
d) A taxpayer's involvement does NOT have to exceed 500 hours a year in one activity to be considered materially participating if other tests are met.

Answer 1

In order to be considered materially participating, a taxpayer does not have to be involved in the business on a full-time basis throughout the year.

Step-by-step explanation:

The statement that is FALSE regarding the tests for material participation in a trade or business activity is (b) A taxpayer must be involved in the business on a full-time basis throughout the year to be considered materially participating.

In order to be considered materially participating, a taxpayer does not have to be involved in the business on a full-time basis throughout the year. Material participation can be determined by meeting different criteria, such as the number of hours spent in the business or meeting specific tests. The key is to meet one or more of these criteria in order to be deemed as materially participating.

For example, a taxpayer can be deemed to be materially participating due to prior years of service (a), can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels (c), and involvement does not have to exceed 500 hours a year in one activity to be considered materially participating if other tests are met (d).